The Resource New German interest barrier in the case of leveraged buy-outs

New German interest barrier in the case of leveraged buy-outs

Label
New German interest barrier in the case of leveraged buy-outs
Title
New German interest barrier in the case of leveraged buy-outs
Creator
Subject
Language
eng
Summary
On May 25, 2007, Germany's Lower House of Parliament (Bundestag) passed the 2008 Business Tax Reform. The cornerstone of the Business Tax Reform is a decrease of the overall tax rate for corporations from approximately 40 percent to approximately 30 percent. However, as a downside, the introduction of the so-called interest barrier (Zinsschranke) will have a substantial impact on structuring debt financed leveraged buy-outs (LBOs). Finance investors, particularly private equity funds, are aiming for a high return on their investment when acquiring companies by using a high amount of debt capital (leverage effect). The interest barrier threatens current and future financing structures of LBOs. This particularly applies to the financing of acquisitions, where the acquisition vehicle and the target have together a rather small EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) compared to the interest expense and where the overall financing exceeds approximately €20 million. In addition, so-called recaps (financings used to increase the leverage for distribution to investors) will be threatened. Existing and future financing structures need to be analysed and adjusted for the avoidance or mitigation of the interest barrier. Starting from a typical financing structure for a LBO, this article provides an overview of the changed tax surrounding and necessary measures for such financing structures
Citation source
In: Tax planning international review. - London. - Vol. 34 (2007),
http://library.link/vocab/creatorName
Scheunemann, M.P
Geographic coverage
  • European Union
  • Europe
Language note
English
http://library.link/vocab/subjectName
  • leveraged buy-out
  • EBITDA
Label
New German interest barrier in the case of leveraged buy-outs
Instantiates
Publication
Label
New German interest barrier in the case of leveraged buy-outs
Publication

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